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Australia just saw a new record gold price and a gold stock correction and now is the time to act, definitely not the time to delay. I did accurately forecast this current pull back and spoke of the current opportunity which is the main point of this article. However I also want to include coverage on the US Bond Market by a leading analyst Colin Emery because of its important implications for gold shares and bullion – but first to a major local issue. Well we just had an election in Australia and we have a new Government with fresh ideas and a lot to learn. Given that there seemed to be little support for our mining sector from the former Government we can only hope for the better.
OK so now we have a Federal Labor Party and they have far greater union ties than the Liberal Party so what was the reaction from our ASX – our Stock Exchange – well it was very positive as we were up 2% today assisted by a 1.4% rise in the USA. Labor is talking about training the workforce, education and talking about how much the mining boom has helped the prosperity of Australia so now it is up to them to follow up. Instead of just correctly calling that most of Australia’s growth is the direct result of mining and resource demand they now have a remarkable opportunity to do the obvious - amplify this economic bonanza using direct assistance.
I am not a Government strategist however if I had anything to do with it I would be offering some additional assistance to this vital industry – some tax incentives for new projects – and a focused training program to support the labor needs of mining companies so as to support the sector and add further strength. More trained staff might contain wage pressures as – lets face it – shortage of skilled workers has forced up wages in the first place. Maybe incentives for workers to get out to the mines so that the supply of workers increases which can allow stable wages and lessen this constraint.
Before the new Government looks to spend the mining windfall wisely they should be looking to maximize the mining boom and opportunity for the mining industry and for Australia. Infrastructure for the boom might be utilized for other purposes as well with a little vision – so cost sharing opportunities and assistance for projects may be worth a look in some areas. It is my hope that they see the potential for a long strong boom – which will not last forever – however it will last for many years to come so we should help the industry prepare to deliver to the world with increasing efficiency.
The correction we had to have
We have just had a correction in gold stocks and back on the 9th of November I released an article called “Remarkable Opportunity” in which I had this to say – “OK so now we need a pull back in this index but this is the time to get your radar on and do your research and pick off the leaders for the next run up. We have been expecting a pullback and now a top has formed however there are many growth stories here even now because these companies have been quietly working hard with resource definition and project development over the past few years. Strong rises are becoming the norm in strong growth stocks and the volatility is presenting fantastic opportunities.”
Well this did transpire as predicted and now I suggest to you that we now have an excellent set of conditions here for investment flows and that you should be getting involved right now – your radars should have been on so you did not miss out. For offshore investors you can take a look at the AUD:USD exchange rate on: http://www.goldoz.com.au/83.0.html and in fact I urge all Kitco readers to take a peek at the ASX-Gold Index charts on this page too. This page contains 3 gold market sub sectors provided by my friend Nick laird at ShareLynx and here is a taste of the ASX Gold Juniors which we have been covering in the Newsletter and my popular PDF set for subscribers.
But even better we have seen the Australian Dollar drop sharply which means we have now reached a record Australian Dollar gold price – last time I looked it was $939.17 per ounce! This is a fantastic price and the gold stocks have just corrected so what are you waiting for?
Offshore and local investors - this is an excellent time to bring in capital and / or invest - for a number of reasons:
- This is the season to buy our gold stocks when they are in rally mode – and they are.
- The stocks have just pulled back and there is awesome value in many / most stocks.
- Our dollar has just provided an excellent entry level.
- Gold and silver are rising strongly in Australian Dollar terms – a break out just occurred.
- This is a safe haven for investment funds due to stable Government and a well run industry.
Our popular Newsletter has seen excellent growth in a short period of time and we have had hundreds of requests for additional coverage of the Australian Dollar – from investors and from the Mining Sector as well – so we are dropping our coverage of Tin and inserting a weekly coverage of the AUD: USD exchange rate from now on. The special on the GoldOz Weekly Newsletter Annual subscription - including a free PDF set - is about to close in the next few days as the upgrade of this PDF set is about to be released. So if you are interested now is the time to grab yours.
Colin Emery comment on Bond and capital flows
Now I also have said we will look at the US Bond markets as this is the place where everyone is going for a parking space – a flight to safety and also of course expecting further interest rate falls – lower inflation presume (funny they have forgotten that at the moment) and US recession. The daily chart below shows the rally (price higher – yields lower) of the US Government bond markets – of course most other credit markets have headed the other way – that is why talk of spreads blowing out – the daily shows a fall below the main support line so lets have a look after this chart at a longer term chart so we can get this into perspective.
Oh before we go onto the longer term chart note the RSI has moved into the lower end – which means overbought in the bond case – or yields too low – so a move back and selling of bonds could be approaching – where do they park then is the question – it will be equities for one – as that would indicate their pessimism re growth and optimism re inflation are moving back to reality. Yes we can stay in a overbought situation for a while – but technically the market here has over extended itself in my opinion – unless there is a major financial crisis or growth numbers drop dramatically towards recession then looking for yields to move lower than 4% at this stage I think would be pushing it and the portfolio managers are over weight and they would be getting a bit concerned on adding more down here – and also remember locking in profits has to come into play….. now a look at the weekly….
The horizontal support line in the daily chart is line 2 on the above weekly US 10 year Bond chart – note also the RSI is overbought. Now I have a support line 2 here we are just touching is a major support line. Also if we look back to the previous low – the low on this chart – in the circled area this is the lowest rate in US bonds since the early 80’s. So we are at low point in yields even during the economic growth period of the previous 3 years – and we are at rates lower than in the previous periods of actual (confirmed not expected) recessions. Makes you wonder if they can push (buy) this market lower. Despite the credit crunch fears from the sub prime this does give us the perspective – offer the point that I have said before - money just got too cheap. It needed re pricing to reflect the economic growth – the demand for capital in a growth cycle – inflation doesn’t seem to be built in – so the yields have got a bit ahead of themselves at these lower levels in my opinion.
Okay it’s a traditional and good parking place in times of worry but this market is now near the bottom of how far they can drive yields – expect a correction – and let’s watch where they park next. But they have run here like sheep – but I think that a stray wolf they have forgotten about is lurking at the back of the shed so watch for that correction and the direction of the next capital wave flow!
But let’s remember the big picture – at the start of the year people wanted the economies to slow as growth was too strong – inflationary pressures were emerging and Central Banks were raising rates. Also people may be noting the negatives of a weak US dollar but the positives are being seen in the increased competitiveness of US manufacturers and Industrials – exports. So like some of the major players looking for opportunities in the Australian Resource markets remember the old saying – “Buy when everyone is selling and sell when everyone is buying”.
Conclusion comment
Seasonal conditions are right on target – don’t be shaken by a correction as January and February are likely to be strong and highly profitable. We usually see a small correction into March and recovery into a May high during such rallies. But this run should take a medium term rally into 2009 in my opinion so this is a wonderful time to get set if you are not already in. We have improved our store and upgraded our products to better assist investors – we have been calling this market with considerable accuracy – drop by and see how we might assist you to gain from the current opportunity today.
Good trading / investing.
Regards,
Neil Charnock
www.goldoz.com.au
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REGISTERED ADVISOR – WHO THE ADVICE COMES FROM IN THE GOLDOZ NEWSLETTER:
Colin Emery is currently a Branch Manger and Senior Client Adviser of a Stock Broking Company in Queensland Australia. Prior to his work in Share broking he spent nearly 20 years in Senior Management and Trading positions in Treasuries for major International Banks such as Bank Of America, Banque Indosuez, Barclays Bank, Bank Of Tokyo and Deutsche Bank AG. He spent a number of years as a Senior trader in New York, London, Singapore, Tokyo and Hong Kong with these institutions. He also was Global Head of emerging energy, emission and commodity products for the leading Energy and Commodities brokerage firm of Prebon Yamane Ltd – Prebon Energy for four years before moving to Cairns in 2003 to focus on the Stock market and Private consulting work. The private consulting and advisory work currently undertaken is with companies involved in Resources, Energy and Renewable Energy and Forestry.
Neil Charnock is not a registered investment advisor. He is a private investor who, in addition to his essay publication offerings, has now assembled a highly experienced panel to assist in the presentation of various research information services. The opinions and statements made in the above publication are the result of extensive research and are believed to be accurate and from reliable sources. The contents are my current opinion only, further more conditions may cause my opinions to change without notice. The insights herein published are made solely for international and educational purposes. The contents in this publication are not to be construed as solicitation or recommendation to be used for formulation of investment decisions in any type of market whatsoever. WARNING share market investment or speculation is a high risk activity. Investors enter such activity at their own risk and must conduct their own due diligence to research and verify all aspects of any investment decision, if necessary seeking competent professional assistance.
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